Firm sees capex downturn in 2011

SAN JOSE, Calif. - Don't look now, but a fab tool downturn could be on the horizon.

2009 was an awful year in the fab tool market. But 2010 is hot, as capital spending is projected to hit $43.2 billion, up 97 percent over 2009, according to Barclays Capital.

2011 looked promising, but a chip lull appears to have reared its ugly head in recent weeks. Now, Barclays is lowering its capital spending forecast for 2011.

''We now offer a more conservative outlook for minus 10 percent year-over-year versus our previous estimate of plus 20 percent,'' said C.J. Muse, an analyst with the firm. ''In turn, we believe this would translate into WFE (wafer front-end equipment) spending dropping from about $27 billion in 2010 to about $25 billion in 2011. Importantly, we see the likely range for capex in 2011 to be minus 20 percent to plus 20 percent, so we believe this estimate is conservative and reflects likely weakening capex trends in the two areas where we see the greatest risk, foundry and DRAM.''

There is good and bad news. According to Muse, here's the good news for fab tool makers in 2011: 1) There is an ongoing ''capex arm's race'' in the foundry market between GlobalFoundries, Samsung and TSMC; 2) NAND demand is holding up and capex will jump by 19 percent; 3) Korea continues to spend on DRAM capacity; and 4) Nanya/Inotera will spend money on DRAM capacity.

According to the analyst, here's the bad news for next year: 1) Overall DRAM spending will likely to drop by 15 percent; 2) Foundry spending is expected to drop by 23 percent; 3) Logic spending, mainly at Intel, is expected to fall by 5 percent.

An end of August release of World Fab Forecast indicates a 133 percent increase in equipment spending for front end fabs this year and about 18 percent growth in 2011. This is based on projects tracked including construction projects and equipment spending for high volume, smaller capacity, MEMS, and Discrete, including LED, fabs. Read the full article here: http://www.semi.org/en/MarketInfo/EquipmentMarket/ctr_040085?id=sguna0910

Here's what VLSI Research said: ''Meanwhile, equipment suppliers aren’t seeing any negative changes in their business, yet. Novellus tightened its Q3 guidance last week by raising the bottom end of the company’s guidance range $10M. They expect Q3 revenues of $345M to $365M, compared to a previous estimate of $335M to $365M. Despite the warning, Samsung said that it’s planning to up their total capex 15% in 2011 to about 30 trillion won. So there is plenty of momentum on the equipment side as we approach 2011. However, this could unwind quickly if end-demand deteriorates further.''